Chapter 13 and the 36 Month Applicable Commitment Period

Understanding Chapter 13 and the 36 month applicable commitment period can be tricky.

I received a call this past week from one of my Rome GA bankruptcy clients who was in a ten percent Chapter 13 plan. He asked his plan said he was going to pay back only ten cents on the dollar but had instead ended up paying back 20 cents on the dollar before his discharge was granted.

To understand how this can happen in a Chapter 13 bankruptcy, one must first understand that all plans must run for a minimum of 36 months. If you pay extra money into your case during this 36 month period, any extra money you pay in will be applied to the unsecured creditors that may have been eliminated. In contrast, if you are in a bankruptcy plan where you are paying all of the unsecured creditors at 100 cents on the dollar, any extra payments will shorten the length of your plan. In a composition chapter 13, extra payments will not shorten the plan because all composition bankruptcy plans must run for a minimum of 36 months.

People who receive large tax refunds during the life of their plan sometimes pay in enough to make a significant difference in the dividend to the unsecured creditors.

Another way unsecured creditors may receive a higher percentage than originally anticipated is when creditors don’t file claims. For example, lets say you owe $20,000.00 in credit card debt. Lets say I write a plan that will pay back your unsecured creditors ten cents on the dollar for a total of $2,000.00. If only half of your creditors file claims for a total of $10,000.00, we are still going to pay back the $2,000.00 over the life of the plan. In this situation, the creditors will receive twenty cents on the dollar instead ten cents on the dollar like we originally planned.

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